Which Investment Option is Preferable: Mutual Funds or Fixed Deposits?

People these days are more into investing their funds than saving it. As investments help in replicating funds, which is not possible when it comes to savings. The interest that you earn on your investments is much higher compared to a savings account. Saving your surplus funds won’t benefit you as investing it would.

When it comes to investments there are two options which you can choose from: A High-risk investment and a low-risk investment. If you wish to earn higher returns and are ok with the risk that comes with it then you can opt for a high-risk investment. But, whereas, if you don’t want to risk your funds you can any day opt for a low-risk investment.

Mutual funds, shares and investment in gold involve high risk as they depend on the market condition, whereas, fixed deposits are totally opposite to it. A Fixed Deposit investment involves a low risk and offers higher returns compared to a savings account, which is why the fixed deposit is one of the most preferred investments among many.

People not only invest in fixed deposits but also prefer mutual funds as an investment option. If you are a new investor and are confused which investment to choose from among these two, then here are some tips that can help you figure out which investment option you should opt for:

Interest Rates:

The interest rate is the most important factor when it comes to investments. As the interest that you earn on your investment determines your profit. Though, fixed deposits are a safe option to invest in they still offer you with high-interest rates compared to a savings account. On the other hand, mutual funds offer its investors with a high rate of interest compared to the other investment options but they involve risk. You can comparing saving account, mutual fund or fixed deposit before investing.

The Fixed deposit offers a fixed rate of interest. The interest offered on a fixed deposit does not depend upon the market rate which is why it remains constant throughout the investment tenure. As the market conditions keep on fluctuating, investments like mutual funds which depend upon it, tend to have a fluctuating rate of interest. The rate of interest offered on mutual funds keeps on changing as the market rates fluctuate. As we all know that the market conditions don’t remain stable, there are high chances one can face loss in mutual fund investments if the market rates fall down. Thus, investing in mutual funds is considered as risky. One can also earn high returns over mutual funds if the market rates hike.

Withdrawing Funds:

In case if you are stuck in financial crisis and need funds urgently, then you might think of the funds that you have invested. In this situation, fixed deposits won’t allow you to withdraw funds. If you have a fixed deposit and want to withdraw funds from it to monetize your financial emergency, then in such a scenario, you have to break your FD. Breaking your FD can charge you penalty as well as lower your interest rates if you want to open a fixed deposit account in future. During this situation, you can use the overdraft facility, in which you can withdraw up to 90% of the amount from your fixed deposit.

On the other hand, when the mutual funds are concerned you don’t have to break your account or have to pay penalty for doing so. You can easily withdraw funds from your mutual funds during a financial emergency. Mutual funds don’t restrict you from withdrawing cash before its maturity

gets over like fixed deposit. This can be a good reason to invest in mutual funds if you predict a future financial emergency.

Depending upon your comfort you can choose any of this investment options. But, it is advisable to opt for a fixed deposit as it is considered much safer option giving a fixed interest rate throughout the investment tenure.

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